Sony Corp. is an “underappreciated entertainment powerhouse” and its stock “unfairly trades at a discount to underlying value due to low-merit concerns about conglomeratization,” Cowen analyst Doug Creutz wrote in a Monday report.
Initiating coverage of Sony shares with an “outperform” rating, he said that “we view Sony primarily as a top-tier entertainment company with market-leading presences in some of the most attractive entertainment verticals,” such as video gaming and music.
The Cowen expert also emphasized that he brings a different focus to the table than others covering Sony shares. “The vast majority of Sony’s current analysts specialize in consumer products and/or Asia technology, with a smattering of video games and nothing on the traditional media side,” he wrote. “We believe our 18 years of experience covering media and video game companies gives us a unique insight into a company that now earns over half of its earnings before interest, taxes, depreciation and amortization from entertainment businesses.”
Creutz on Monday shared his take on the conglomerate’s Hollywood business, highlighting opportunities that other entertainment giants don’t have. “Sony’s Pictures segment represents the only major Hollywood-based film/TV asset that is not tethered to a major over-the-top service, leaving Sony in the position of being a film and TV arms merchant to the content-hungry SVOD and AVOD markets,” he wrote.
The Cowen analyst also called Sony “a clear global market leader in video gaming for over two decades,” noting that its PlayStation 4 (PS4) finished the last console generation with the largest hardware installed base, while the PS5 “is the early leader in the current generation, which kicked off late last year.” Because of the “rapid” adoption of digital distribution of video games, Creutz said that “we think Sony is now also the largest retailer of games and gaming content in the world.”
Meanwhile, Sony’s music business “holds the number 1 share in music publishing and number 2 share in global recorded music, in what is essentially an oligopolistic three-player market,” the analyst emphasized.
Discussing the company’s content franchises, Creutz also sees upside, arguing that “Sony’s strong intellectual policy across gaming, music, film and television offers unique opportunities for transmedia efforts, which the company is just now beginning to exploit.”
All in all, Sony’s Electronic Products & Solutions and Financial Services units “largely exist to generate cash flow to feed to Sony’s higher-growth opportunities” in entertainment and Imaging & Sensing Solutions, Creutz argued.